Intellectual property protection challenges to digital collection
NFT—this acronym has the whole world buzzing! NFTs are being sold globally at unimaginable prices. Recently the New York Times sold its column on NFT, titled “Buy this Column on the Blockchain”, as an NFT, for $563,000. Auction houses are not behind either. Sotheby's and Philips launched NFT auctions and sold NFTs worth millions of dollars in minutes. As of the year 2017, a whopping $174 million has been reportedly spent on NFTs. According to a recent article in Time magazine, art collectors have spent almost $200 million on NFTs in February 2021 alone.
But what exactly is an NFT?
In simple words, Non-Fungible Tokens or NFTs are a type of digital asset or a certificate, the ownership of which is recorded on a blockchain. Unlike other digital assets that can be interchanged/exchanged, NFTs are not interchangeable, due to their non-fungible nature, and are considered a digital collectible of the work they represent, such as, tweets, art, music, games, etc. Due to their non-fungible nature, NFTs are scarce and are not available in abundance, making them an extremely desirable asset.
With great power comes great responsibility, particularly legal. While it is essential to understand the meaning of NFTs, it is also essential to understand what their ownership entails from a legal standpoint. Owning an NFT does not confer ownership of the underlying work that the NFT represents. The difference between buying an original artwork and buying an NFT is the non-transfer of copyright in the original underlying work.
An NFT is merely a digital copy of an underlying original work and provides ownership in that digital copy only. To illustrate this point, let's take an example of an artist of an oil painting, painted on wood canvas, who has created several unique NFTs of her oil painting on a blockchain. Each of these NFTs could represent the original painting. But selling such NFTs would grant ownership only in the NFTs and not what they represent. Clearly, given their very nature, an NFT holder cannot publish, distribute or earn royalties from the oil painting because only the owner of the copyright in the painting would have such rights by virtue of the law governing copyrights. While it is possible to transfer the rights of the copyright owner to the NFT holder by way of a smart contract, essentially the NFT holder is only left with the rights over the NFT that may be sold later to third parties.
A smart contract is a digital contract, the terms of which are set in code by the parties to the contract. These digital contracts can be set to self-execute upon fulfilment of certain predefined conditions. NFTs can be embedded within a smart contract and can be distributed upon execution of the smart contract, either by complying with its terms or by completion of the pre-defined conditions. These smart contracts can be used to lay down the terms and stipulations of the license, setting limits to the use of copyrights, provide automatic royalties in case of resale transactions, and track subsequent purchases.
Considering the potential of NFTs and with the boom in artificial intelligence, there is a debate regarding whether an NFT itself can be treated as a copyrightable work. This question raises a few eyebrows particularly when a robot creates an original digital work and mints it on a blockchain as an NFT. While copyrights protect tangible mediums of expression, legal experts feel that these developments may create a need to amend copyright law to accommodate such a situation and to protect NFT via copyright law.
Latest trends show that there is a slowdown in the sale of NFTs and that their demand has plummeted. While proponents don't see this slowdown as a threat to the market of NFTs, sceptics believe that NFTs are just a seasonal fad.
Irrespective of the longevity of their lives, there is no doubt that NFTs have opened up new dimensions for people belonging to various sectors, particularly legal. The importance of NFTs demonstrate the significance and role of intellectual property law in facilitation of protection and acquisition of new forms of original work.
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